EXERCISE 3

At the beginning of the current year, ABC Co purchased a franchise from Mc Donut Co, to sell the Co's products for

a period of 10 years amounting to P4,000,000. ABC is to initially pay P500,000 for the initial franchise fee with the

balance to be paid in 5 equal annual payments of P923,291.18 every December 31. ABC can borrow a similar loan

of this type at 10% for 5 years. ABC also agrees to pay the franchisor a continuing franchise fee of 10% of their

annual sales. The franchise was granted on January 1 and operations started on February 1, generating sales

amounting to P10,000,000.

Prepare all related journal entries for the year.

EXERCISE 5

Elasto Painters Company began operations on January 2, 20x7. Shown below is part of the company's trial balance

on December 31, 20x15.

Patents 1,650,000

Franchise agreement 285,000

Organization costs 306,000

Goodwill 1,035,000

The following are made available:

Patents

The patents, acquired January 2, 20x8, and have an expected useful life of 14 years. Improvements made to

equipment covered by the patents costing P250,000 were debited to the account in January 20x12. Was never

recorded by the company.

Franchise Agreement

A franchise agreement was signed on January 1, 20x15. A P150,000 fee was paid, covering a 5- year period, at the

end of which the company may renew the agreement by paying P150,000. A decision on renewal has not been

made as of December 31, 20x15. The agreement calls for an annual payment of 5% of revenue.

Organization Costs

Organization costs include the unamortized portion of amounts paid to promote for services rendered at the

inception of the corporation. These fees have been amortized, since inception, over an estimated 40-years life. The

decision is made, as of December 31, 20x15, to reduce the total period of amortization of organization costs to 12

years.

Goodwill

The goodwill account includes the following:

P135,000 - Legal expenses relative to incorporation. These were assigned to the account in January 20x7.

P600,000 - Excess of cost over assigned net asset values of an enterprise acquired in early 20x13 expected to

be of value for an indefinite period.P300,000 - Paid to an advertising consulting firm in early 20x14 for a major advertising effort expected to be

beneficial for an indefinite period.

No amortization has been taken on any amount in the Goodwill account.

1. What is the total Patents amortization for 20x15?

2. What is the carrying value of the Patents on December 31, 20x15?

3. What is the carrying value of the Franchise Agreement on December 31, 20x15?

4. What is the carrying value of the Organization Costs on December 31, 20x15?

5. What is the carrying value of Goodwill on December 31, 2015?

Exercise 8

Transactions during 20x9 of the newly organized Baby G Company included the following:

Jan. 2 Paid legal fees of P225,000 and stock certificate costs of P124,500 to complete organization of the

corporation.

15 Hired a clown to stand in front of the corporate office for 2 weeks and hand out pamphlets and

candy to create goodwill for the new enterprise. Clown cost, P15,000; pamphlets and candy, P7,500.

April 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P 643,500

Patent application and licensing fees 95,250

Total P 738,750

It is estimated that in 6 years other companies will have developed improved processes, making the

Baby G Company process obsolete.

Acquired both a license to use a special type of container and a distinctive trademark to be printed

on the container in exchange for 6,000 shares of Baby G's no-par ordinary shares selling for P75 per

share. The license is worth twice as much as the trademark, both of which may be used for 6 years.

July 1 Constructed a shed for P1,965,000 to house prototypes of experimental models to be developed in

future research projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling P2,625,000

in 20x9.

REQUIREMENTS:

1. Determine the cost of patent.

2. Determine the cost of licenses.

3. Determine the cost of trademark.

4. Determine the carrying amount of Intangible Assets.

5. Total amount resulting from the foregoing transactions that should be expensed when incurred.